The politics of clean energy

Michael Goldsworthy has made two big bets on commercialising solar energy and trying to stem the flow of Australian innovation going offshore. At Mildura in Victoria,
Silex Systems
has $125 million in government support to build a 100 megawatt (MW) solar power station using giant parabolic mirrors that concentrate the sun’s rays.

Goldsworthy, Silex’s chief executive, is investing $30 million at his Abbotsford factory in Melbourne to make mirrors for Mildura and a series of solar power stations being planned to follow here and overseas.

And at Homebush Bay in Sydney the company is spending $20 million increasing production capacity to 40MW a year at Australia’s only factory making silicon solar voltaic cells.

“Our whole business model is based on innovating in alternative energy," Goldsworthy says. “A lot of the silicon-based solar technology in use round the world originated in Australia but was commercialised overseas. This time, one way or another, we want to actually manufacture Australian innovations in solar technology."

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Silex developed laser technologies for enriching uranium for use in nuclear reactors, which are being commercialised in the United States in partnership with GE. But it is its commitment to commercialise local technology in Australia that will test the government’s commitment to alternative technologies.

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“We can manufacture economically here but the government has got to decide what constitutes fair competition," Goldsworthy says. “Chinese firms get big handouts from their government and have low labour costs, so we have to be smart. For too long we have seen Australian innovations turned into businesses offshore because we don’t support our manufacturers and our technologists enough."

Australia is well regarded for its scientific research, but historically, national innovation policies that often seem unrelated to industry goals have left us an underachiever in commercialising our inventions. Researchers point to University of NSW solar voltaic technology, which has been commercialised three times, all overseas. First BP, then CSG Solar, a Sydney company that moved to Germany, and finally China’s Suntec, based their expansion on the Australian technology.

Geoff Ward, the chief executive of geothermal energy company
Geodynamics
, says what had been missing was support to make the transition from promising technology with low capital requirements to proven commercial-scale systems. In geothermal energy the capital requirement was on a par with the development of the North-West Shelf.

“Bringing new national scale technologies across this divide is critical " Ward says. “The market will respond once the right policy framework is in place. It cannot in isolation deliver the massive structural changes required."

However, Paper Seven of the recent update report by the government’s climate adviser,
Ross Garnaut
, found Australia’s alternative energy R&D and commercialisation policies lacked clear objectives, were inflexible, complex and not neutral in their support for competing technologies.

There are 13 different low-emissions funding schemes, but the Australian National Audit Office has found that spending often does not match grandiose announcements. The $500 million Low-Emissions Technology Development Fund has spent less than 5 per cent of its budget, the $94 million Solar Cities project has spent only 26 per cent of its budget and the $400 million Greenhouse Gas Abatement Program 40 per cent of its budget.

“It appears that, to date, government support for low-emissions technologies is characterised by delays in program implementation and under-expenditure," Garnaut says.

Algae.Tec is an ASX-listed innovative biofuels company that avoids government schemes because of excessive bureaucracy and the demand that companies reveal intellectual property to reviewing committees.

“Seven faceless men meeting in a committee would judge whether we are achieving what we say we are," executive chairman Roger Stroud says. “We found the whole process a very difficult one."

In a story repeated for many small technology companies,
Algae.Tec
has gone to the stockmarket relatively early to finance development of systems for producing fuel from algae. Venture capital, which is also in short supply, extended R&D tax benefits or low interest loans would be better mechanisms to support such early-stage businesses.

In his update, Garnaut urged doubling the spending made in Australia on research and development (R&D) and commercialisation to $2.7 billion a year as a necessary adjunct to a carbon price.

Australian Coal Association executive director Ralph Hillman says Australia does not have the policies that will ensure commercialisation of technologies that are already receiving taxpayer subsidies.

“A carbon price alone is not going to be high enough to encourage any of the technologies that are out there," Hillman says. “The government is going to have to have some mechanism, perhaps through [electricity] tariffs or accelerated depreciation, to encourage investment."

Under the Coal21 initiative, $1 billion of industry money is being spent on carbon capture and storage (CCS) projects, but full-scale demonstration plants needed by about 2015 are beyond the ability of industry to finance. Such lack of finance has killed off or forced offshore many promising Australian technologies.

For example, Canberra-based Dyesol has looked overseas to Tata Steel and Pilkington Glass to industrialise its technologies to produce electricity from coated steel and glass.

“Australia has some excellent researchers who are generating technologies in this space but there is no commercial pull-through,"
Dyesol
executive chairman Richard Caldwell says. “Ultimately they wither on the vine or are taken offshore."

Garnaut made a number of what industry considers sensible suggestions to streamline government programs, including the establishment of a Low-Emissions Innovation Council to co-ordinate activity and integrate it with international programs. The council would develop funding mechanisms other than grants to support technology demonstration and commercialisation.

Resources Minister
Martin Ferguson
was unavailable to comment but in a recent speech he committed the government to support demonstration and commercialisation as well as research.

“The government is supporting clean energy technology right through the innovation chain," Ferguson told a CEDA conference.

Innovation Minister
Kim Carr
rejects Garnaut’s assessment of programs as complex. He plays down the possibility of doubling national expenditure on energy R&D, saying the government had boosted innovation spending by 43 per cent since it took office. “It is unrealistic to expect a doubling of spending yet again in the economic climate we have at the moment," he says.

He also cautions about the likelihood of increased support to help fund the expensive CCS pilot plant and scaling up part of the innovation process.

“This is a very difficult area of innovation policy and very few countries have got it right. I think we have been able to improve the performance of government programs and we will continue to work to improve further."

The innovation community is not confident of the government’s ability to reform and co-ordinate its efforts. R&D tax adviser Kris Gale says the new R&D tax credit that Carr recently pushed through Parliament helped small start-up businesses in the early days of their operation when they were making losses. But this was achieved by narrowing the definition of what was eligible R&D in a way that would crimp big companies’ ability to claim a tax benefit for pilot plant expenditure.

“These new rules do seem to introduce real restrictions on the amount of experimental development and production-based R&D that you can get support for," Gale, the managing director of Michael Johnson Associates, says. “The most expensive phase [of commercialisation] is the latter phase and that is where I expect to see less government support."

As well as hitting the economics of pilot plants, the new tax credit could potentially prevent manufacturers from claiming benefits for process improvements designed to reduce their carbon footprint.

“That is exactly the place where companies innovate the most,“ Gale says. “There is a bit of a double whammy for industry in this bill."

Another area of alternative energy commercialisation where government has a role is in services, which dominate the economy. CSIRO is spending $40 million a year through its “energy transformed" flagship research program, including developing building management systems that can cut power consumption by 30 per cent.

“These kinds of systems can help people save money, but more importantly reduce the peak demand for electricity, which is one of the key drivers of rising electricity prices," says the flagship’s director, Alex Wonhas.

Wonhas says the public sector has been fulfilling the role envisaged by Garnaut in its focus on pre-competitive research, including in services. Global giant GE has a $20 million R&D alliance with CSIRO, which includes low-emissions research.

GE is also supporting the development of the services that will be needed to support electric vehicles (EVs). The company has a global and Australian partnership with EV services provider Better Place, which plans to own electric vehicle batteries, charging users a monthly fee much like a mobile telephone. The fee will cover a user’s energy needs, which will come from in-home and workplace electric charge points and battery swapping stations for those rare drivers who travel long distances during the day.

Ecomagination is GE’s name for its business push into low-emissions products and services. Better Place is rolling out its network in Israel and Denmark first, but it does not have big finance operations in those countries. The company aims to buy 25,000 EVs a year for its own use by 2015. GE is also supporting EV Engineering, a consortium of automotive parts makers that is developing an all-electric GM Holden Commodore vehicle. Custom Fleet buys 55,000 cars a year in Australia and is in a good position to influence whether fleet managers embrace EVs.

“Australia is the first place it will all come together for GE," Waters says. “In GE there is no bigger deal than EVs.

“As we move to the carbon-constrained economy, we certainly expect to see interest from Australian fleet operators in an electric vehicle option as part of their portfolio of transport solutions," he says.